Enron.Org: Why Sarbanes-Oxley Will Not Ensure Comprehensive Nonprofit Accountability
65 Pages Posted: 11 Mar 2004
Date Written: March 2004
In the name of avoiding Enron-like scandals among nonprofit organizations, several state attorneys general (AGs) have proposed nonprofit reform legislation that draws closely on the language and principles of the Sarbanes-Oxley Act. This article explores these important and as yet unexamined nonprofit reform efforts, and articulates the perils of perceiving them as panaceas. It begins by deconstructing the comprehensive concept of nonprofit accountability into its financial, mission, and organizational accountability components. Then, it interprets AGs' statutory mandates, explores their institutional competencies, and candidly examines their political incentives, in order to assess and anticipate AGs' nonprofit enforcement agendas. This analysis concludes that AGs consistently will prioritize financial issues, and will fail to address vital issues of mission creep and lapses in nonprofit governance. Next, the article explores various examples of activist AGs' nonprofit enforcement efforts to demonstrate that AGs actually have prioritized financial concerns. Its brief review of AGs' recent use of traditional enforcement tools, like fiduciary litigation and charitable solicitation regulation, reveals a consistent focus on financial issues. Likewise, the article's extensive evaluation of AGs' nonprofit Sarbanes-Oxley proposals demonstrates their emphasis on financial accountability, and corresponding neglect of mission and organizational concerns. Since even today's most innovative and activist AGs have not and will not comprehensively police nonprofit accountability, the article concludes by offering preliminary thoughts on complements to AG enforcement. In particular, it explores possibilities for nonprofit self-regulation to bridge the gap in mission and organizational accountability enforcement, and thereby help protect nonprofits' vital role in contemporary society.
Keywords: nonprofit, corporations, governance, charity
JEL Classification: G39, K22
Suggested Citation: Suggested Citation